Did Wichita forget the interest?

In a presentation, Wichita economic development officials ignore the cost of borrowing money.

In a presentation to the Wichita City Council on March 5, 2019, the council was shown a pro forma cash flow statement regarding the new baseball stadium.

Presentation to Wichita city council. Click for larger.
The conclusion reached by city officials was: “The $38M equates to over 50% of the $75M stadium debt repayment.” 1

$38M, or $38,000,000 refers to the sum of the amounts the city expects to receive from these sources:

  • Incremental sales tax (used to pay STAR bonds)
  • TIF revenue (incremental property tax revenue)
  • CID (the extra sales tax customers will pay)
  • Naming rights
  • Management fee (the rent the new team plays the city)

The pro forma statement shows these cash flows starting in 2020 and continuing through 2042.

$75M, or $75,000,000, refers to the cost of the baseball stadium. (In this illustration the city has not included the $6,000,000 the city plans to borrow to pay for the pedestrian bridge and riverfront improvements.)

What’s missing? Interest on borrowed money.

If the presentation said, “The $38M equates to over 50% of the $75M stadium debt principal repayment,” that would be correct. But to tell the council that it costs just $75,000,000 to repay the stadium debt ignores the fact that the city is borrowing this money.

There will be a lot of interest to pay. We don’t know how much, as the bonds have not been sold, except for the STAR bonds. The city has planned to borrow $42,140,000 in STAR bonds. In the disclosure for these bonds, the interest payments alone total $24,647,850. In some years the interest payment alone is $1,828,556. 2

Citizens should ask the city what will be the total cost of repaying the stadium debt, and not settle for answers that ignore millions of dollars in interest.


Notes

  1. City of Wichita. Stadium Private Development Agreement. March 5, 2019. Available at https://www.wichita.gov/Council/CC%20Presentations/2019-03-05%20PowerPoint%20Presentations/V-3%20Approve%20the%20Private%20Development%20Agreement%20with%20Wichita%20Riverfront%20LP.pdf.
  2. Municipal Securities Rulemaking Board. CITY OF WICHITA, KANSAS SALES TAX SPECIAL OBLIGATION REVENUE BONDS (RIVER DISTRICT STADIUM STAR BOND PROJECT), SERIES 2018 (KS). Available at https://emma.msrb.org/IssueView/Details/ER387382.
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